Daiichi Sankyo reports profit jump, forecasts fall

Tokyo: Daiichi Sankyo swung back to a profit in the latest quarter but forecast a surprise 18% drop this year as Japan’s No.3 drugmaker ramps up spending to develop and market new drugs.

Daiichi also cited the likely absence of a major gain due to currency rates at its Indian generic drug arm Ranbaxy Laboratories, which helped boost profit in the business year ended 31 March.

Shares of Daichi, which ranks behind Takeda Pharmaceutical and Astellas Pharma among Japanese drugmakers, rose 1.8% after the results but are still down 15% this year amid a tough outlook for the industry.

Daichi announced the promotion of executive vice president Joji Nakayama to president to replace Takashi Shoda, who will become chairman, and five new candidates for its board, including three external directors.

Minoru Matsuno, president of Value Search Asset Management, said the stock was supported by its plans to keep its dividend at 60 yen this year, for a relatively high yield of 3.6%.

But drugmakers and other defensive shares were generally not in favour, which would limit any gains by Daiichi, he said.

“The market is trying to take advantage of an economic recovery at the moment, and in such a market drug stocks tend not to be able to play a lead role,” Matsuno said. “Daiichi Sankyo is expecting a profit fall and has a high PE ratio, so I don’t expect the stock to have much upward room. ”

For the quarter ended on 31 March, Daiichi swung back to a recurring profit of ¥12.47 billion from a loss of ¥38.02 billion in the same period a year ago.

For the year to March 2011, Daiichi forecast recurring profit to fall 18% to ¥85 billion, short of the consensus of a ¥104.8 billion profit in a poll of 16 analysts by Thomson Reuters.

Daiichi’s new flagship drug, the blood-thinner Effient, has so far had disappointing results, but growth at Ranbaxy has given Daiichi an advantage over its rivals, which are focused on branded drugs that face patent expiries.

Ranbaxy reported its fourth straight quarterly profit on Tuesday and kept its forecast for strong growth in 2010 from new products. Daiichi’s results reflect Ranbaxy’s earnings with the timelag of a quarter.

Takeda and Astellas are due to report earnings after the close of trade on Wednesday.